On April 30, 2007, the U.S. Supreme Court issued two opinions that may shape the intellectual property landscape faced by insurers.
In KSR International Co. v. Teleflex Inc., No. 04- 1350, the Supreme Court rejected a formulaic approach to the question of what may be considered “obvious” and thus not patentable for purposes of the U.S. patent law. In KSR, the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) undertook to apply a test for obviousness that, among other things, focused on the question whether a new combination of known elements would have been obvious to someone seeking to solve the patentee’s particular problem. The Supreme Court stated, “The question is not whether the combination was obvious to the patentee but whether the combination was obvious to a person with ordinary skill in the art.” For this purpose, it was necessary to examine whether a person of ordinary skill would have been moved to combine the elements in the way the claimed new invention did, even if the combination might not have been obvious to someone undertaking to solve the patentee’s particular problem. The Supreme Court reversed the Federal Circuit’s judgment that the innovation in question was patentable, stating, “Granting patent protection to advances that would occur in the ordinary course without real innovation retards progress and may, in the case of patents combining previously known elements, deprive prior inventions of their value or utility.”
Insurance companies have expressed concern that patent applicants are able to obtain patents for minor tweaks to existing insurance products. Under KSR, the United States Patent and Trademark Office (USPTO) and district courts will have greater latitude to take into account the effects of demands known in the industry and the marketplace in determining an invention to be unpatentable. For example, if an insurance company introduces a new insurance product with a feature that is being offered primarily in response to a change in the law, and the new insurance product is nothing more than a predictable combination of old elements configured to address the change in the law, it will be easier for the USPTO to reject the patent application.
Only time will tell whether KSR turns out to be a tightening of the standard for patentability or merely a refocusing of the test. As many commentators have pointed out, even prior to the Supreme Court’s decision in KSR, the USPTO had begun applying stricter standards and allowing fewer patents. With allowance rates already down at the USPTO, it is unlikely that KSR will result in further decreases in the number of patents issuing.
It is anticipated that most insurance companies will not change their approach to filing patent applications in response to KSR, at least not right away. The Supreme Court in KSR did not address the patentability of business methods, such as those that may be incorporated in insurance products, as a class of inventions. Under current Federal Circuit case law, patent protection for such an invention generally is available assuming the innovation is not obvious. Additionally, many insurance companies are now filing patent applications for innovations that are implemented in software (e.g., the software required to administer a new insurance product), and the patentability of software-implemented inventions is more settled.
In a second decision, Microsoft Corp. v. AT&T Corp., No. 05-1056, the Supreme Court enforced the territorial limits of the U.S. patent laws. In Microsoft, AT&T argued that its patent on an apparatus for digitally encoding and compressing recorded speech was being infringed by foreign computer manufacturers. These manufacturers were installing Microsoft Windows software that would enable their computers to process speech in a manner claimed by the AT&T patent. AT&T undertook to enforce a statutory exception to the general rule that no infringement occurs under U.S. patent law when a patented product is made and sold in another country. In this exception, an infringement occurs where one supplies components of a patented invention from the United States for combination abroad. The Supreme Court held that this statutory exception as written did not protect AT&T because the foreign manufacturers had installed the Microsoft software from copies they had made and Microsoft thus had not exported from the United States the copies actually installed on the foreignmade computers.
Beyond the manufacture of computers, the Supreme Court’s decision highlights the territorial limits of the reach of U.S. patent laws. “The presumption that United States law governs domestically but does not rule the world applies with particular force in patent law,” the Supreme Court said. For insurance companies with business in other countries outside the United States, the Microsoft decision means that the foreign operations of such companies are less likely to get ensnared in a dispute relating to U.S. patents.
Twenty years ago, a Supreme Court decision on patents would have drawn collective yawns from many segments of the business community. In recent years, however, interest in intellectual property has increased as the percentage of corporate value that is tied up in intangible assets has increased. Insurance companies are at the forefront of this trend, with things like underwriting techniques and innovative product features often being considered the “crown jewels” of the company. As a result, intellectual property now may play a significant role in the future fortunes of insurers.
This article is a part of the FOCUS on the Insurance Industry Summer 2007 Newsletter.